The appellate court ordered a new trial for the contract dispute with Remington Development Corp.
The Court of Appeal of Alberta has overturned an “extraordinary” $165 million judgment against Canadian Pacific Railway Company and the Province of Alberta, ordering a new trial in their dispute with an Alberta-based real estate development company.
In its decision Wednesday, the appellate court said the trial court’s analysis of a contract between the company and CPR contained several errors. The ABCA said these errors undermined the trial court’s findings of liability for CPR and the province.
The appellate court added that the trial court failed to assess damages correctly, resulting in “seemingly unprecedented compensatory damages awarded.”
ABCA Justices Jolaine Antonio and Kevin Feth wrote the majority opinion. Justice Thomas Wakeling agreed with Antonio and Feth to allow CPR and Alberta’s appeal, but authored a concurring and dissenting opinion that said the case requires the ABCA “to interpret a contract between sophisticated enterprises and revisit the common law’s most venerable civil damages case, Hadley v. Baxendale.”
The dispute between CPR and Remington Development Corporation stretches back over two decades, when they first discussed the possibility of CPR selling land in downtown Calgary to the real-estate development company. In 2002, they entered into agreements for the company to buy three parcels of land from CPR. Two of those transactions closed without incident.
Under the terms of the agreement for the third parcel of land, the only parts of the land that could be sold to Remington were those “surplus” to CPR’s operational requirements. Under the agreement, CPR had the discretion to determine which parts of its land that encompassed, but had a deadline to make this determination or apply for permission to subdivide the plot.
Remington allowed CPR to extend this deadline multiple times while the railway waited for the City of Calgary to process its applications to subdivide the land. Shortly after the city approved its request, CPR told Remington it had decided to sell the land to the province instead.
Remington sued CPR for breaching their agreement, later amending its statement of claim to add a claim against the province for inducing breach of contract.
In October 2022, a trial court ruled in favour of Remington. The judge found that CPR had breached its agreement with Remington, Alberta had induced the breach, and CPR and the province were liable to the company. The following year, the judge upped the judgment against CPR and Alberta to $165 million from $163 million, plus $45 million in prejudgment interest.
CPR and the province appealed the judgment. Meanwhile, Remington filed a cross-appeal, arguing that the trial court should have also awarded punitive damages.
The ABCA determined that the trial court’s findings on CPR’s liability were “tainted by legal error” and left unresolved questions.
“The trial judge erred in law by failing to properly consider the contract as a whole,” the appellate court wrote. The court noted that the trial judge interpreted the agreement between CPR and Remington to mean that all the land CPR could potentially sell was unsubdivided, and that the subdivision application to the city was the “central mechanism” for defining what CPR could and couldn’t sell.
The trial judge then considered how to apply that interpretation to already subdivided lands that did not require subdivision applications.
“This piecemeal approach gave rise to a conflict: the lands defined as potentially conveyable included lands that were already subdivided, but the contract’s central mechanism did not apply to those lands,” the appellate court said. “To resolve this conflict, the trial judge resorted to implying terms by way of an erroneously relaxed test.”
The ABCA said that because it ordered a new trial on CPR’s liability, the trial court’s conclusion that Alberta is liable for inducing breach of contract no longer stands. If a new trial leads to the conclusion that CPR did breach its agreement with Remington, whether Alberta is liable for inducing the breach “will need to be decided afresh,” the court said.
The appellate court also took issue with how the trial court assessed damages.
“The extraordinary compensatory damages ordered in this matter – lost profits from a specific and unique development – were not available in the ordinary course under the first branch of Hadley,” the ABCA said, referring to an 1854 decision in Hadley v. Baxendale, which set out the test to determine damages from a breach of contract.
The ABCA said the trial court’s analysis also failed to apply other rules for assessing damages.
“Awarding extraordinary damages that were not reasonably contemplated at the time of contracting could cause a chilling effect on the effective functioning of commercial real estate transactions in Alberta,” the ABCA said.
In his concurring and dissenting opinion, Wakeling called the case “an important appeal, not because of the quantum of the award – over $200 million – but because of the questions the appeal presents.”
Wakeling referred to the trial court’s decision to award damages to Remington because the company could not follow through with plans to develop the parcel of land that was eventually sold to Alberta. Under Hadley, damages from a breach of contract should include the damages a reasonable person could expect to “naturally” result from the breach.
However, Remington had no specific development plans when it entered into its agreement with CPR, and CPR was unaware of any plans.
“The correct conclusion is that damages for specific projects ought not to be awarded, regardless of who the developer is, if at the time the land sale agreement was executed the developer did not provide the seller with a specific development plan,” Wakeling said, adding the trial court’s damage award “is the product of rampant speculation.”
Wakeling wrote that if he is wrong, and CPR should have reasonably predicted that it would cause Remington to lose out on development opportunities by selling the land to Alberta, other issues arise.
“Would it be just to limit the damages to which Remington Development is entitled to avoid granting the plaintiff disproportionate compensation? Should a court invoke the disproportionate compensation concept if the contracting parties are sophisticated, have retained counsel to protect their interests, or have agreed to a detailed contract?” the justice asked.
Counsel for CPR and Remington did not immediately respond to requests for comment.
A spokesperson for Alberta’s Office of the Minister of Justice declined to comment on the decision because the matter is still before the courts.
